Nigeria is facing enormous economic challenges and needs massive revenue to meet existing obligations. The population is outgrowing the economy and critical steps are necessary to deal with revenue failure. The public sector contributes little in terms of revenue but can contribute a lot in terms of policy enablers – ease of doing business, legal innovations etc. what follows are legal/policy innovations on how government can generate revenue.
Last year Nigeria made ₦970.3 Billion from oil, ₦1.6 Trillion from non-oil taxes, and ₦2.8 Trillion from a cumulative of other sources. In total the country brought in ₦5.5 Trillion in revenue. Out of that ₦5.5 Trillion revenue, ₦4.2 Trillion was spent on servicing (repaying) debts from January to November. What was left after paying debts was ₦1.3 Trillion. If you recall, the 2021 national budget was N13.57 trillion. This meant we had barely N1.3 trillion to run the country and needed an extra ₦12.27 trillion. Where did we get it? Yes, you guessed right – we borrowed. In 2021 Nigeria spent ₦12.56 trillion – most of which were borrowed money spent on things that do not bring money back (salary, fuel subsidy, etc). The situation is not going to be fundamentally different in 2022. The Federal Government plans to borrow to finance the N6.39 trillion deficits in the 2022 budget. The NNPC has submitted a budget of 3 trillion for fuel subsidy.
If Nigeria was a man who makes ₦100k a month, he borrows ₦5 million every month to pay for the light bill and running of the house. You see the picture now? Scary, isn’t it? The Excess Crude oil account (which is like our savings) is almost empty. So not only does this man borrow like a crazy person, he has no savings for emergencies (like if his boss decides not to pay salary). The rule is we should never borrow more than 40% of our GDP. We are at 36.9%; 3.2% more and all the alarm bell goes off. Now – imagine if our revenue keeps dropping, and the debt keeps increasing. And one day – voom – 3.2% crossed! Then we will really have a debt problem. Since we currently borrow to pay salary, when the alarm goes off – further borrowing is a disaster: The Government will struggle to pay salary. (This is scary considering that the Government is the biggest employer of labour in Nigeria). More Taxes will be imposed to raise money, including tax of Goods which will increase the prices you pay on foreign rice for example. Our currency will get further devalued. Which means things will get even more expensive in the market. The Minister of Finance has done a lot in terms of introducing new revenue streams in the Finance Act but a lot more needs to be done. As we go into another election season, it is important to engage politicians putting themselves forward for elections on how they intend to resolve Nigeria’s revenue crisis.
At OAL, we have developed legal proposals that can generate N100 trillion.
Innovative and transformational tools are needed to bring Nigeria out of this revenue crisis. One of the critical tools to achieve this which is often ignored, is law. Law has tools to extract revenue and create jobs. We have developed a proposal to show how law can be a primer of innovation and transformation of the Nigerian economy. The proposal will review critical legislation, policies, and executive orders that can generate N100 trillion and 5 million jobs. The proposal focuses on a few economic sectors: Trade policy, Maritime, Aviation, Land Administration, Financial Services, Space, Digital Economy, E-commerce, Entertainment, etc and can be extended to other sectors. Below are snippets of our policy and legislative proposals.
Nigeria is a very big country with over 200 million people but is a dumping ground for foreign goods because we have no national trade policy and legislation. It is important to enact legislation that will support the Nigerian Office for trade negotiation (NOTN). To support local produce, the starting point is to enact trade remedies legislation. Trade remedies legislation imposes anti-dumping duties on dumped products. There is also counter-veiling special duties measures imposed on exports into Nigeria subsidized by a foreign country. The trade remedies legislation will also prohibit imports if it is adjudged that they will cause material injury to local industries, for example by impeding growth. A new trade policy and legislation can generate over N1trillion annually including massive jobs creation.
Foreign aircraft dominate the Nigerian airspace and earn well over N1 trillion annually to our exclusion. What is needed is a policy that will generate and lock in income from aviation in Nigeria. Nigeria can generate over I trillion annually by simply passing a Fly Nigeria Bill. A Fly Nigeria Act will ensure that public funds to purchase air tickets must originate and fly on a Nigerian carrier. The Fly Nigeria Act will create an instant market of goods, passengers, and services for our national carrier. Jobs will be created and revenue generated to the advantage of the economy.
This is potentially the largest economic sector outside of hydrocarbons. A recent report by a Dutch consultancy firm, Dynanmar, shows that Nigeria loses about N20 billion daily at the ports, which at an annual value, is about N7.2 trillion annually. Nobody is quite sure about the figures from other sectors – Legal, Banking, and Insurance.
In the Oil and Gas industry, for example, all the major legal work (which is well beyond $1 billion in value) by the major IOCs are carried out by foreign retained law firms. These foreign law firms are engaged in extensive legal support for the IOCs- from advisory to contract drafting, consulting, arbitration, mediation, cross-border litigation, and the various legal relationships arising between the government of Nigeria and the IOCs in relation to oil well disputes, Production Sharing Contracts and legal issues related to NAPIMS.
The only connection a handful of Nigerian law firms have with legal services in this industry is when they are subcontracted by foreign law firms to provide data support and advisory on the status of Nigerian Law. So, generally speaking, the legal services spend, which is revenue generated and accruable, ought to be invested in Nigeria with the relevant multiplier effects, such as job creation and development.
In Banking, funds accruable to Nigeria in relation to crude oil production are all domiciled in foreign banks without interest, sometimes for months before remittance to the Central Bank of Nigeria. No Nigerian bank plays any direct, significant, and pivotal role in the oil and gas industry mainly because Nigeria’s huge financial accruable is sent offshore to banks like Barclays, J.P. Morgan Chase & Co., Morgan Stanley, Credit Suisse Group, etc. Additionally, the Insurance Industry plays a very insignificant and limited role concerning the Maritime Industry in Nigeria.